How To Start A Home Care Or Home Health Service Business

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The information provided in this article is by Rick Lijana who is an owner and president of a successful home care business called BrightStar Care in Indiana .

Home Health: Generally refers to agencies that provide a skilled service in a person’s home under a Medicare payer source. Skilled services include services provided by a registered nurse, physical therapy, and occupational therapy. For a patient to be eligible for home services, the patient must be “home bound.” That is a certification that must be determined by their doctor.

Home Care: Generally refers to private pay services in a person’s home. Most home care agencies provide basic personal care and homemaker services. Personal care is bathing, personal hygiene, dressing, transferring, etc. Home care provides assistance to people with their daily activities. These services include transportation, light housekeeping, and meal prep.

Personal Care with a Certified Nurse Aide or Home Health Aide are licensed to physically interact with a client. The homemaker services do not allow the physical interaction. Most howe care companies do not provide skilled medical services, although some do.

Types Of Provided Services 

Home health care services (and some home care services) provide RN’s, LPN’s, and PT’s to their clients. There are very few private pay clients that use a skilled service unless they have insurance that covers in home care. Home care services tend to be more affordable, and people without insurance tend to opt for home care services first unless the patient is very sick.

What Kind Of People Should Start A Home Care Business?

This business is a service oriented business so a passion for people is a necessity. It is also an emotional business as the vast majority of clients are elderly with chronic health issues. Many clients will pass away while under care. Empathy and sympathy is needed in this business. Additionally, the service providers must be mentally strong enough to avoid being too emotionally affected by the passing or suffering of the people who they help.

How Much Money Does It Take To Start A Home Care Business?

A franchise in this business will run about $50,000 for an area representing a population of around 250,000. A typical franchisor will require an office location that isn’t someone’s domicile, proper signage, marketing material, and training.

Total asset costs may be in the $15,000 range. These costs would account for a few computers and office equipment. That means that the total to start a home care or a home health service business is around $65,000 to $75,000.

Additional costs will include a sales person, office support, a nurse if the company provides a skilled component, and paying the “owner.” Typical breakeven in this type of scenario will occur in about 11 months. The average franchise owner will need $150,000 to $200,000 to start and run the operation for the 11 months until they break even (this number includes the initial franchise fee and asset purchase).

There are also many mom and pop home care service provider companies that like to start on a shoe string. Here they can run the business out of their house, employ independent contractors (in lieu of hiring direct), and put together their own marketing plans, and execute those marketing plans. An individual can start a home care business for very little. It is possible to get started with such a business after investing only $10,000-$15,000.

A typical mom and pop home care provider can hit a revenue mark of $150,000 per year after 3 years. A typical franchise will hit $400,000 per year after three years. Good franchise outfits will hit the $1.0M in annual revenue by year 3.

Here is a tutorial for how to write a business plan if you feel like you need to get your finances and overall plan in order.

Licenses & Permits Needed For A Home Care Or Home Health Service Company?

Licensing depends on the state one operates. In many states, there are two basic licenses. The two licenses are the PSA (Personal Services) and HHA (Home Health Agency) licenses. The HHA is much more extensive and allows a company to perform the skilled services. The PSA is limited to homemaker and some personal services work. The PSA is very limited, but easy to get. Lot of mom and pop businesses will go the PSA route. Some States, like Michigan, are non licensure states, so as long as an individual has the credentials (like RN or CNA).

Should A Home Care Company Take Insurance?

A home care company typically does not accept insurance because most of their customers hire them privately and pay out of pocket. Home care companies that provide skilled health services can get in network with many insurance companies like Aetna, Cigna, United Healthcare, and many others. But typically the total insurance paid business is less than 5% of their total. The return is not there, but it is nice to offer as many options for our patients.

What Are Some Of The Biggest Costs? What Are The Product Margins?

The biggest cost by far is the field staff, or in accounting terms, the cost of goods sold (COGS). One definition of COGS is: field labor cost + FICA tax + workers comp + unemployment Insurance (basically field labor plus about 14%). So if one charges $20 per hour for personal care services, and the field staff is paid $10 per hour, then the total cost is $11.40 per hour. That gives a Gross Margin of around $8.60 or 43%.

The remainder of the expenses, below the gross margin line, should account for no more than 35% of revenue leaving a bottom line margin of 8%. Best in class (assuming annual revenue of $1.0M) bottom line margin would be in the 15% range. The largest expense below the gross margin line is office staff. Office staff wages should be in the 15% to 20% of total revenue range. The rest of the money is for office rent, supplies, and other similar expenses.

Marketing Plan & How To Get Clients

Direct sales is a popular offline marketing and sales strategy for home care businesses. A typical home care or home health service company employs one full time sales person to call on doctor offices, assisted living facilities, independent living facilities, elder law attorneys, insurance companies, medicare agencies, and other similar companies. Pay for a full time sales person is 50% base + 50% commission. Total wages can be in the $60,000 per year range.

Online marketing for a home care company is typically made up of SEO and social media marketing.

On a side note, we offer a social media marketing training course and an SEO course. You can also check out out marketing plan book.

Additional marketing channels for a home care company or a health services company can be local TV, radio, print ads, and networking groups.

The best overall return is via online marketing. Potential customers go to online and do their research. A strong company has to be on page one of Google searches, preferably at the top. Money spent on getting on page 1 is very effective in driving new leads. TV/radio is also a good source to drive brand awareness (getting people to view your website). However, one needs a lot of critical mass to afford TV branding. One advantage of a franchise is that there are 400+ branches that share the cost. Print ads have historically been a poor investment. Networking results in average returns on time and money invested in them.

It takes about $400 to onboard a new client. If you can spend “only” $75 to generate a lead, it is a good situation. It takes about 3 leads to generate one customer. So you spend $225 in marketing cost per admitted client, then you will be acquiring customers below the $400 number.

How To Make Sure You Hire Great Employees

You can perform federal, state, and local background checks, drug screening, skills testing, competency observations, and drivers license verification. You can start the hiring process with an application, move to a phone interview, then a face to face interview, then an on boarding process. Potential employees fall off at any stage for a multitude of reasons. The only real way to make sure you hire a great employee is to assess their performance over the first 90 days.

How Many Employees Do You Need? How To Make Them Reliable?

Rick Lijana says that his company likes to keep each Personal Care/Homemaker field staff in the 25 to 30 hour per week range. So if a company does $20,000 per week in revenue or about 1000 hours of work, then the total needed would be about 40 employees. The home care business is one filled with drama, especially at the homemaker level. Keeping everyone’s hours limited, allows the flexibility to manage a call off, for whatever reason. We do have various incentive programs where we reward reliability.

How Do You Monitor & Mentor Employees?

Rick Lijana says that all of his company’s client care is overseen by a registered nurse. A key responsibility of our director of nursing is to visit each client once per month to perform an assessment of the client and to do a supervisory visit of our caregiver. We observe him/her in action, score their performance, and hold reviews. We also require each employee to obtain at least 8 CEU’s per year of which we mandate the topics (infection control, fall risk interventions, dementia, etc.) Our monitoring/mentoring of employees is the responsibility of our Director of Nursing (RN).

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